$32. Is that how to price accounting services? When I first really offered another service to somebody, I was thinking about how much I needed to charge on an hourly basis. I remember at the time, I think I was making in my job $64,000 a year. So, I just took $64,000 divided by 2000 work hours in a year and I came to $32 an hour. It’s sort of funny because before you really owned a business, you’re not going to really charge or bill for that full year. You just don’t know these things. So, you just make decisions based on weird calculations and you don’t really know that your math is right. $64,000 divided by 2000 hours in a year is $32 an hour. So, somebody asked me if I could help them out, how much would I charge?
I said $32 an hour. I had also grown up in this sort of traditional accounting firm culture where everything is built on the hour, and I don’t even remember what they were charging—$250, $300 an hour or something like that, maybe more. I didn’t think much about it. I just thought, well, I’m obviously younger, I’m less experienced, therefore I need to charge a lower amount.
Years later I ended up learning so much about this small business accounting culture that I now live in. This whole concept of value pricing. It’s crazy. It’s almost like I was actually vegan for six years and whenever you attach to an idea that’s like veganism, it’s so one-sided and you’re into it. I wasn’t one of those people that was throwing blood on people with fur coats or something like that, but I was into it for nutritional purposes, or at least that’s what I thought.
Now when I think back and I’m really honest with myself, I was like a cult, like you just read a book and you kind of bought into it. Even though I’m not a scientist, I certainly don’t know that much about nutrition, I bought into that book and I chose to believe it and it went on to really define so many things about myself and my identity. I gotta tell you there is definitely a little bit of a cult around this whole fixed pricing thing and this accounting industry, and it’s amazing how people are so attached to it.
They’re so addicted to it, they define themselves and their whole business around value pricing. At first I thought it was a totally interesting concept and it obviously makes sense, just billing by the hour versus billing a fixed fee based on the result. I think it’s gone a little bit too far. What I find is whenever somebody is so attached to something and they’re so engrossed in it and they build their whole identity around it, I always wonder, what are they not spending time on that that they could be or what are they missing by being so caught up in that. I’ve probably talked to 5,500 different accounting firm owners across the US and 16 or 17 other countries and the people that are super addicted and super attached to value pricing…they spend like 90% of their time talking about pricing, value, pricing, value, pricing, value pricing.. It’s just crazy. So, how to price accounting services? With “value pricing”?
How to price accounting services should always be about what is cheapest or most affordable. Many accountants don’t spend much of their time talking about value creation. How do you actually create value for someone? The funny part is, so many of these people that are doing value pricing, they’re value pricing services that there’s not really a lot of value in the first place. If you aren’t providing a lot of value and then you learn to value price, well that’s not going to help you that much because you’re not really providing any value in the first place. Then let’s say you are providing value. Then value pricing does make a lot of sense. There’s a lot missing out there in this culture around “What does it mean to actually provide value to clients?”
The people that I’ve seen that are the most successful, that are really growing the fastest, able to charge the most, they’re accountants that are actually making people money. Think about that. Accountants that are actually making people money. I think one of the big challenges is that there are a lot of indirect ways, and a lot of accountants or people that are providing, I think services are not good at really explaining or quantifying these indirect ways. You also want to try to provide value in as many direct ways as possible.
I mean, a great example, and I’ll link below this video, a training that we put together for tax planning, where when you sit down with a business owner, if you can say, ”I know you worked with an existing CPA or accountant or tax preparer last year and I know you paid him $1,000 to do the business return, but really you didn’t. You paid them $15,550 it’s just that, $14,550 went to the IRS and overpayments. So, if we were to work together this year, I’d be able to save you, I estimate, just looking at our conversation today…haven’t even looked at your return, but based on going through deductions, legal entity structure, retirement insurance loopholes, tax cuts and jobs act updates on this call, everything we’ve talked about, I estimate I could save you X amount of dollars.”
Let’s say it’s $16,350, whatever it is. If you can tell people numbers, you might say, “Andrew, that makes sense on the tax side. But what about on the accounting side?” I had a client I met years ago who really showed me an example of how doing accounting or CFO services can end up making money for the clients. He was a guy working in Nashville, his wife is a dentist or a dental hygienist. This was the first example where I really started to understand this. Whenever he would sit down with a dentist, he would actually restructure the incentive plans for the hygienists. Now obviously he had a little bit of a bias given that his wife was a hygienist. I’m sure he wanted to make more money, but he would restructure the incentive plans for the hygienists so that they would make more money if they recommended more accurately the services that the patients needed.
What he found was that when he would set up this incentive plan for the hygienists, sales of a dental practice would go up 15-20%. So if a dental practice is doing $1M a year in sales, they could do $1.2M a year in sales by working with them. He’s not doing their reconciliations in the month end close. I mean he’s just setting up a new bonus and incentive and compensation structure for the team members of the firm. So, I think one of the things that’s missing is value pricing, but what does it really mean to create value? What are the different ways in which we can not just value price, the compliance services like cleanups and bookkeeping and tax prep that we’re already doing, but how do we figure out and get creative on ways that we can actually make clients money? Then from there determine the value pricing makes sense, and to be honest, value pricing makes sense most of the time.
What I find is you want to still leave that hourly option open. I’m going to give you an example. So many people that I work with, when they work with a new CFO client, they’re going to take on the reconciliations and the month-end close. Maybe the old bookkeeper just left and left the books in tatters, so they go through the process of doing a clean up. When you first get a client, those of you that have experienced this, you never really know what you’re getting into with a cleanup. Like you never really know how much work is this really going to be? So a lot of times what I recommend is that people do a fixed fee.
They do a value price fee up front for the amount based on the number of months, based on the size of the company, based on what you would charge on a monthly basis. We have a calculation for that. You qualify and you say, “If we go over, we’ll bill hourly after that” because there’s no way to fully protect what you’re getting into without going through multiple consultations. Even if you look at the QuickBooks file, then there’s your credit card accounts that weren’t included. There’s new bank accounts that weren’t included, so there’s no real way to do it. So, I find that getting too attached and this sort of cult-like behavior around value pricing as opposed to keeping your options open. I like to use all tools. I don’t like to just stick to some tools and not use other tools.
It’s like playing golf with only a seven iron. You’re going to play golf with only a seven iron and I’m going to take my whole bag, and we’re equal skill. Who’s going to win? So, if you’re only allowed to use value pricing and you’re not allowed to use all the tools that are available to you, it’s going to be difficult to win. So, I hope that this was helpful for you guys for those of you guys that have built your whole identity around value pricing, I don’t think there’s anything necessarily wrong with it. I just think that there’s way too much of a focus on it. If you spent 90% of your attention on figuring out how to actually make clients money and 10% of your attention on worrying about how to price it, I think you’d be a lot better off. So, how to price accounting services? Think more how to create value!
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